Intel expects profits to hold up in 4Q

AGENCIESOct 15, 2008, 10.51am IST

SAN JOSE: Intel Corp has provided some insight into the state of global PC demand, telling Wall Street that while technology spending may be slumping, the chip maker fully expects its profits to hold steady.

The Santa Clara, California-based company, the world's largest maker of PC microprocessors, said Tuesday that its third-quarter profit rose 12 per cent, beating analysts' estimates by a penny per share.

The increase was driven in large part by technological advances that lower Intel's cost of making each chip, which helps the company wring out more profits even in tough economic times.

Sales, in fact, rose just 1 per cent, helped by a 20 per cent jump in revenues from laptop microprocessors, but were held down overall by lower sales of desktop and server microprocessors. Intel missed the consensus revenue estimate by about $40 mn.

Wall Street was already expecting that Intel's third-quarter results would be in line with analyst forecasts, since a spending freeze by many corporate information technology departments did not fully emerge until late in the quarter, when the financial crisis worsened dramatically.

As the first major tech company to report earnings for the July-September period, investors were looking to Intel for signs about the health of the overall sector heading into the holiday season and 2009.

Intel's processors are used in around 80 percent of the world's PCs and servers built with PCs, so swings in demand for those chips are valuable indicators about order volumes for the rest of the PC industry.

Intel cautioned that economic turbulence makes it hard to reliably predict fourth-quarter results. But the company still forecast healthy and relatively unchanged profit margins.

That was seen as a sign things might not get as bad as some market-watchers fear.

Intel shares climbed 65 cents, 4.1 per cent, to $16.58 in after-hours trading. They had closed down $1.06, 6.2 percent, at $15.93 during the regular session before Intel reported its results.

Intel's net income for the three months ended Sept. 27 was $2.01 bn, or 35 cents per share. That compares with $1.79 bn, or 30 cents per share, from the year-ago period.

Sales were $10.22 bn, just a 1 per cent increase over last year, but Intel said the figure was a record for the third quarter. Analysts expected $10.26 bn.

Stacy Smith, Intel's chief financial officer, said because of the economic uncertainty, Intel plans to update investors in early December, ahead of the formal fourth-quarter report, about the company's finances.

``We have a high degree of uncertainty around demand in the fourth quarter, but our execution is good,'' he said in an interview.

Lower manufacturing costs helped Intel increase its gross profit margin by 3.5 per centage points from 55.4 per cent of revenues in the second quarter to 58.9 per cent of revenues in the third. Gross margin measures how much money a company makes on each dollar of revenue once manufacturing costs are stripped out.

While Intel is thriving, its smaller rival, Advanced Micro Devices Inc, is planning to spin off its chip-making factories to cut costs. AMD announced last week that it's partnering with the Persian Gulf state of Abu Dhabi in the joint venture.

The deal is an acknowledgment that AMD can't compete alone against Intel in the very expensive chore of semiconductor manufacturing.

AMD reports its third-quarter results on Thursday. Analysts are expecting a loss of 40 cents per share on $1.48 bn in sales.

Intel Chief Executive Paul Otellini warned that it's ``hard to know'' what impact the financial crisis will have on demand for Intel's chips in the fourth quarter. Still, Otellini said he expects Intel to ``outpace peer companies'' during the period because of its sales momentum and strong products and balance sheet.

Intel predicted a gross profit margin of 59 per cent of revenues, plus or minus a couple of percentage points in the fourth quarter.

Sales, however, could come in below the range of estimates offered by Wall Street analysts. Intel expects sales of between $10.1 bn and $10.9 bn. Analysts were expecting sales in the range of $10.4 bn and $11.3 bn.